Close Close
Popular Financial Topics Discover relevant content from across the suite of ALM legal publications From the Industry More content from ThinkAdvisor and select sponsors Investment Advisor Issue Gallery Read digital editions of Investment Advisor Magazine Tax Facts Get clear, current, and reliable answers to pressing tax questions
Luminaries Awards

Regulation and Compliance > Federal Regulation > IRS

IRS to Treat Bitcoin as Property for Tax Purposes

Your article was successfully shared with the contacts you provided.

Bitcoin’s vagabond days may be drawing to a close.

The IRS on Tuesday issued a notice saying it would treat virtual currency such as bitcoin as property for federal tax purposes. “General tax principles applicable to property transactions apply to transactions using virtual currency.”

Bitcoin users who have operated largely without government oversight since the digital currency’s introduction in 2009 now have to think about tax implications and reporting.

They may be subject to capital gains taxes, in contrast to individual traders in international currency markets, who treat gains and losses as real income when filing tax returns.

The bitcoin decision has a number of implications laid out by the IRS in a set of frequently asked questions.

Wages paid to employees in virtual currency are taxable to the employee. An employer must report these on a W-2 form. And they are subject to federal income tax withholding and payroll taxes.

In addition, payments using virtual currency made to independent contractors and other service providers are taxable, and self-employment tax rules generally apply. Payers normally must issue Form 1099.

The character of gain or loss from the sale or exchange of virtual currency depends on whether the virtual currency is a capital asset — like stocks, bonds and other investment property — in the hands of the taxpayer.

If it is, a taxpayer generally realizes capital gain or loss.

If the sale or exchange of virtual currency is not a capital asset in the taxpayer’s hands—e.g., inventory and other property held mainly for sale to customers in a trade or business—the taxpayer generally realizes ordinary gain or loss.

In addition, payment made using virtual currency is subject to information reporting to the same extent as any other payment made in property. 


© 2024 ALM Global, LLC, All Rights Reserved. Request academic re-use from All other uses, submit a request to [email protected]. For more information visit Asset & Logo Licensing.